AUSTRALIA

Retail market conditions still divergent across Australia

2016-07-28T14:00:00Z

JLL’s latest Retail Research shows positive rental growth for retail landlords in Sydney and Melbourne while other markets remained stable or recorded slightly negative growth

​​​JLL’s Q2 2016 Retail Research shows Sydney and Melbourne continue to lead in terms of broad market conditions, reflecting stronger local economic conditions and population growth. That was reflected in the latest figures which showed positive rental growth in Sydney and Melbourne but stable or slightly negative growth in the other markets.

The last two years have been positive for retail in terms of retail spending growth but it hasn’t translated into a meaningful recovery in the overall retail property market fundamentals such as vacancy rates and rents.

JLL’s Australian Head of Retail, Property & Asset Management, Tony Doherty said, “The latest research figures showed that from a national perspective average retail rents were unchanged across the three core shopping centre formats of regional, sub-regional and neighbourhood. However, we did record positive annual rental growth in the CBD and bulky goods sectors of 0.5% and 1.1% in Q2.”

The average national vacancy rate increased slightly from 3.9% in December 2015 to 4.2% in June 2016. A slight increase was recorded across regional and sub-regional centres over the same period while the CBD retail vacancy rate rose more substantially, from 6.3% to 7.0%.

Mr Doherty said, “Market conditions are likely to soften slightly in the next few months as the effect of retailer discounting impacts margins.

“However, there are plenty of reasons to remain optimistic about the outlook for retail. The fundamental drivers of retail spending are being supported by the fact that we have persistently low interest rates, households are in a relatively strong financial position and there continues to be above-average levels of employment growth, nationally.

“From a leasing market perspective, as always, competition between retailers is high. Major international fast fashion retailers are expanding around the country, while domestic specialty retailers are generally steady in terms of their store networks. Retailers continue to review stores carefully and are taking the opportunity to move to more productive locations as leases expire. Centre Management teams have also been very proactive in adjusting the tenant mix to create the best possible offering within the increasingly competitive retail market,” said Mr Doherty.

JLL’s Associate Director of Retail Research, Andrew Quillfeldt said, “The retail market remains highly polarised. Market-wide trends in retail rents and vacancy rates are hiding some of the underlying trends which suggest shopping centres are performing very divergently across all the retail sub-sectors. Top performing centres continue to report solid MAT and rental growth, while others have continued to see more subdued trading and leasing conditions.

Owners remain focused on development activities, particularly refurbishing their existing centres. Supply is expected to rise in 2016 year-on-year, but it remains modest compared with the previous cycle. Based on what’s in the pipeline for this year, completions will be 24% below the annual average over the four years leading up to 2009.

“Monday’s announcement by Woolworths to close certain supermarkets and to grow their network more slowly will have implications for some property owners. However, over the medium to long-term, the implication of lower levels of new neighbourhood shopping centre supply will be positive. Existing centres will become more productive as the population continues to grow – particularly in Melbourne, which has the highest level of population growth nationally,” said Mr Quillfeldt.

Neighbourhood shopping centres currently account for the largest share of the three year forward pipeline at 41%, although some projects in the neighbourhood centre pipeline may be deferred or cancelled following the announcement by Woolworths to slow their development program. Regional makes up 26% of the three year pipeline and sub-regional accounts for 21%, followed by bulky goods at 16% and CBD at just 16%.